Economics and Opportunities Driving Consolidation in Top-Performing Permian Basin

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The result of increasing consolidation in the play, he said, will be a net reduction in capital spent, but higher productivity levels, as remaining operators will be able to achieve greater capital efficiencies. Additionally, individual operators will have more acreage for high-grading opportunities and will employ cost efficiencies across a greater inventory of new wells, generating improved returns.

“Generally speaking, smaller operators have more challenged economics than larger operators, largely due to the ability of larger operators to leverage operational and cost efficiencies across a greater acreage and production base,” said Jerry Eumont, managing director, North America Supply Analytics Service at IHS Energy, and a co-author of the Permian Basin consolidation analysis. “We anticipate that much of the activity in the coming months will be driven by operators of all sizes, who are already operating in the basin, but focused on leveraging acquisition attempts for a variety of strategic purposes.”

Apache, the IHS report said, continues its transition to focusing more on Permian unconventionals, while Pioneer splits its focus on its Permian and Eagle Ford assets. Devon, despite its position in the Barnett and Eagle Ford, promotes activity in the Permian, though with below-average productivity. With the sustained drop in oil prices, operators with a greater presence in the basin appear poised to acquire smaller, pure-play operators, the IHS report noted, but IHS also expects new entrants to be active.

More than 185,000 wells produce from the Permian basin, according to IHS, with nearly 18,000 horizontal wells. ”The Permian Basin covers a vast geographic footprint, however, the large number of well bores leads to few, if any, truly new production bases,” Eumont said. “With so little acreage not held by production, any operator looking to enter the basin will have but one method to execute that strategy—acquisition. But they may not want to wait long, since premiums do not appear to have topped out, which means companies looking to do business in the basin may pay even higher prices in the future.”

IHS Energy has recently examined activity and outlook for other emerging plays or sub-basin in the Permian, including the Wolfcamp Delaware in its IHS Energy Wolfcamp Delaware Review, and the Midland Basin in its IHS Northern Midland Basin Company Play Analysis.

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